The U.K.’s blue-chip FTSE 100 benchmark closed at a record Thursday, as traders largely shook off an advance in the pound and instead welcomed reports that Britain plans to stay in the customs union after Brexit.
Shares of oil companies ramped up in value as oil prices shot up, and shares of betting companies managed to reverse losses that followed a government move to drastically limit bets on certain machines.
How did markets move?
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.76% gained 0.7% to end at 7,787.97, a record close and marks the first since Jan. 12, according to FactSet data. Thursday’s win was the index’s third in a row.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0073% traded at $1.3507 after hitting an intraday peak of $1.3569, up from $1.3490 late Wednesday in New York. Sterling strength can pull down the FTSE 100 as it eats into revenue made overseas by the benchmark’s multinational companies.
On Wednesday, sterling traded around its lowest dollar level since late December, as the greenback rallied on speculation the Federal Reserve could start to raise interest rates more aggressively.
What drove markets?
The pound gained ground, although backed away from intraday highs, following a report that the U.K. government plans to tell Brussels it wants to stay in the European Union’s customs union beyond 2021 in an effort to avoid a hard border with Ireland. The report, in the Daily Telegraph , said Prime Minister Theresa May’s Brexit subcommittee has agreed on Britain staying in the union on a temporary basis, if the technology needed to keep the borders working after Brexit aren’t up and running.
Gambling companies were in the spotlight again after the U.K. government’s decision to cut the maximum bets that can be placed on fixed-odds betting terminals to 2 pounds ($2.70). People can currently bet up to £100 every 20 seconds on such machines.
Paddy Power Betfair PLC said the new stake limit could cause a 33% to 43% fall in its total machine gaming revenue. William Hill PLC , whose shares trade off the FTSE 100, said the changes could cause a 35% to 45% fall in its total net gaming revenue.
Shares of Paddy Power and William Hill has been driven lower after the report, but eventually swing higher to close up 1.9% and 4.2%, respectively. This week, shares of Paddy Power and William Hill have respectively charged up about 18% and 17% after a favorable U.S. Supreme Court ruling on Monday that could open sports betting around the nation.
What are strategists saying?
Marshall Gittler, chief strategist at ACLS Global, noted that while the Brexit developments may solve the problem of the Irish border it may not be acceptable to the hard-core Brexiteers in May’s cabinet.
“It seems to me to be ‘Brexit-lite,’ leaving the EU in name but not in reality, as remaining in the customs union also means adhering to various EU rules and regulations without having any say in their making. I’m not sure this is going to fly politically in Britain. It may settle one problem, but set up another one—a cabinet revolt,” Gittler said in a note.
On the FTSE 250 Index /zigman2/quotes/210598417/delayed UK:MCX +0.96% , Ocado Group PLC shares /zigman2/quotes/207225647/delayed UK:OCDO -1.61% soared 44%. The company, which runs online delivery services and makes related software, said it has signed a partnership agreement with U.S. supermarket chain Kroger Co. /zigman2/quotes/206215053/composite KR -0.98% under which Kroger will use Ocado’s technology in the U.S. for grocery and other food-distribution activities.
Oil producer Royal Dutch Shell /zigman2/quotes/204253697/delayed UK:RDSB -0.23% /zigman2/quotes/207682964/composite RDS.B -0.79% bulked up 2.1% and rival BP PLC /zigman2/quotes/207305210/composite BP -0.77% gained 1.4% as Brent crude futures jumped above $80 a barrel. The Trump administration’s recent decision to reinstate sanctions on Iran have continued to fuel a rally that’s pushed the oil market to 3½-year highs. The U.S. has said it is possible there will be secondary sanctions imposed on European companies who continue to deal with Iran.
“The oil market is tightening and we now see it as appropriate to factor in at least some of the windfall profitability that higher prices are generating,” said Lydia Rainforth, a Barclays oil and gas equity research analyst, in a note, adding its key overweight oil stocks are BP, Royal Dutch Shell and France’s Total SA .
Burberry Group PLC /zigman2/quotes/205386705/delayed UK:BRBY +0.56% /zigman2/quotes/203108786/delayed BURBY +0.15% tacked on 3.2%, with Credit Suisse, UBS and Deutsche Bank among the financial firms that raised their price targets on the luxury goods company. On Wednesday, Burberry posted a rise in full-year profit and said it would start a new 150 million pound ($202.8 million) share buyback, leading to a 3.6% rise in its shares.
Shares of Experian PLC /zigman2/quotes/210252954/delayed UK:EXPN +1.25% surged 5.6% after the consumer-credit reporting agency said it expects to launch a new share-buyback program of up to $400 million.
National Grid PLC picked up 3.8% after the utility company said its fiscal 2018 pretax profit rose 24%. It also said it expects its U.S. business to continue performing well and that the U.K. business remains on track to outperform.